Toyota failed to fix defect that can cause Prius to overheat and lose power, dealer claims in lawsuit

Claremont Toyota refuses to sell these Priuses because it believes a defect can cause them to lose power and stop. Dealer Roger Hogan, who is suing Toyota, is flanked by Roger Hogan Jr., left, and Stephen Hogan. The family owns Claremont Toyota and Capistrano Toyota. (Gina Ferazzi / Los Angeles Times)

After Toyota issued a 2016 recall to fix a key electronic component on its Priuses, one of California's largest dealers said the cars were still coming in after overheating and leaving drivers stranded in traffic.

Toyota said the problem on model years 2010-14 had been taken care of with a software change.

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But having seen more than 100 post-recall failures, Roger Hogan — whose family owns Claremont Toyota and Capistrano Toyota — warned customers about the issue and refused to resell used Priuses he'd gotten as trade-ins. Today, he has 70 of the cars, worth $1 million, parked at his dealerships.

Last year, Hogan filed a lawsuit in Orange County Superior Court alleging that the Prius hybrid system has an unresolved safety defect that could leave cars without power. And he filed a complaint with the National Highway Traffic Safety Administration's office of defect investigations, telling the agency in a Dec. 14 letter that "there are lives needlessly at risk."

"Our responsibility begins and ends with our customers' safety," said Hogan, former president of the Southern California Toyota Dealers Assn., who has owned Toyota sales lots for nearly a quarter of a century.

"We believe Mr. Hogan's complaint is entirely without merit, and we intend to defend vigorously against his inaccurate and misleading allegations," the company said. "Our focus remains on the safety and security of our customers."

Hogan filed his suit, which alleges breach of contract and fraud, in Orange County Superior Court last July and amended the allegations in November. Toyota sought to have the case thrown out on legal grounds, but Judge Peter Wilson ruled in December that it could go forward and set a trial for January 2019. The existence of the suit has not been previously reported.

Toyota officially recognized a problem in the hybrid system on Feb. 12, 2014, when it filed a voluntary recall with the National Highway Traffic Safety Administration. It acknowledged a defect that could cause overheating in a device called an inverter, which controls high power transfers between the battery and the vehicle's two electric motors.

The inverter boosts the battery's 200 volts to about 500 volts to drive two electric motors, and converts the electricity from direct current to alternating current (similar to what comes out of a household outlet). When the car brakes are applied, the power flow reverses to charge the battery.

Toyota's recall fix involved unspecified changes to the vehicle's software. Toyota has not said exactly how the software reduces overheating, and its statement did not answer questions submitted by The Times about whether it could affect the vehicle's performance, fuel economy or emissions. Some automotive experts contacted by The Times say the software could affect the vehicle's performance.

Toyota was aware of the inverter defect even before issuing the Prius recall, according to the suit. It began two smaller recalls of its Highlander sport utility vehicles, covering 2006 to 2010 models, about a year before the Prius recall to remedy overheating problems in a nearly identical inverter. In the Highlander recall, the inverter was replaced, the lawsuit said.

Hogan's suit and complaint alleges that the software fix was a cheap way out that failed to remedy the problem.

Hogan asserts in his letter to NHTSA that the manufacturer has sold more 800,000 Prius models in the U.S. with defective inverters and 80,000 hybrid Highlanders with the problem. The software fix costs $80, while an inverter replacement costs more than $2,000 per vehicle. Hogan said the software fix is saving the company $1.3 billion as compared with replacing the inverters.

Toyota's statement Tuesday defended the validity of the software fix, which it said allows a vehicle to move at a slow speed even if the inverter overheats and fails.

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"Toyota stands behind the effectiveness and appropriateness of the Prius inverter recall remedy, which was designed to ensure operation of the vehicle in failsafe driving mode in the unlikely event of an inverter failure," the company said. "Once in failsafe mode, the vehicle can be safely driven for some distance at a reduced speed. This feature, which is common across the automotive industry, was designed to enhance vehicle safety."

When the inverter fails, the car's diagnostic system notifies the driver with a "check hybrid system" light on the dashboard and stores diagnostic codes that allow technicians to find the problem. Technicians who work for Hogan told him that all of the inverters returned with such codes have shown signs of soot and charring inside the inverter housing.

Martha Anderson, a retired school teacher who lives in South Orange County, said she was driving home from shopping last October when her 2012 Prius — which had the software fix — lost power in busy traffic on Alicia Parkway in Laguna Nigel. She was able to pull over into a parking space on a side street.

"I've never lost power before," Anderson said, adding that the experience left her shook up. "I just thought, 'Please, God, let me out of here.' I was lucky I wasn't on the freeway."

When the car was towed to Hogan's nearby dealership, mechanics found that the inverter had overheated so badly that two holes were blown through the aluminum case and even steel bolts had signs of melting. Anderson got rid of the Prius and bought a new Corolla from Hogan. The failed Prius is one the dealer refuses to resell.

Hogan posted a warning about the problem on his dealership website in 2017 under the title of "public safety notification." When Toyota became aware, it sent him a letter saying the posting contained misleading information and would confuse customers.

"When implemented," the letter said, "the software change lessens the likelihood of a failure by improving the power management and internal operating temperatures for specific electronics in the inverter."

Skip Miller, the attorney who represents Hogan, said the assertion that the software fix only "lessens the likelihood" of a failure is a violation of federal law. "The whole point of recall law is to fix the car before it fails," he said.

The fail-safe mode, which Toyota documents also call limp-home mode, allows the cars to go 5 or 10 mph, Miller said. "It is an extreme safety hazard," he said. "It is intended to limit damage to the inverter."

According to Miller, Hogan's problems with Toyota date to about 2015 when the dealer paid to develop a software program that would improve recall notifications to Toyota customers. It was aimed at increasing the often low completion rates after a recall is issued and notifying mechanics when a specific vehicle brought in for other service was under a recall.

Miller said Toyota rejected the idea and began quarreling with the Hogan family. The suit alleges that Toyota refused to supply all the vehicles that Hogan could sell, essentially diverting his business to other dealers. And it says Toyota decided to "punish Hogan" by blocking his plan to turn over management responsibility to his three sons.

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In its statement, Toyota said, "Ultimately, we believe Mr. Hogan's lawsuit is motivated primarily by a separate dispute he has with Toyota over management and succession issues involving his dealership, not the efficacy of this recall."

Toyota's handling of the Prius recall comes nearly nine years after the company faced problems with sudden acceleration in its Camry and Lexus models. A California Highway Patrol officer and three family members died in a runaway Lexus.

Federal regulators found that Toyota had failed to promptly notify customers about unintended acceleration problems caused by faulty floor mats and sticky accelerator pedals. The company was fined $1.2 billion, which at the time was a record for an auto defect. Criminal allegations in the matter were dropped last October under a deferred prosecution agreement.

So far, inverter failures have not been linked to any injuries or crashes, though when a car loses power the owner might not be aware that it was caused by an inverter failure, Miller said.

In recent years, hundreds of consumer complaints about Prius inverter overheating have been filed on the NHTSA website and posted on various online forums. In one of many examples, an owner reported that the car stalled out on a freeway when the dashboard warning lights indicated a hybrid power failure.

The inverter is roughly the size of a box for hiking boots with a thick aluminum case that is packed with high power transistors, capacitors, microprocessors and a liquid cooling system. The inverter is able to handle more power than often runs through a household wiring system. Its power conversion occurs in a series of transistors that turn on and off thousands of times per second.

According to University of Michigan electrical engineering professor Heath Hofmann, a hybrid systems consultant, the auto industry is trying to find a substitute for the transistors, which are prone to high temperatures.

The changes made in the software update could be reducing the amount of power that flows through the inverter, which could affect the Prius' fuel economy and emissions, said University of Maryland professor Michael Pecht, who founded the school's Center for Advanced Life Cycle Engineering, which focuses on electronics reliability.

"They could be reducing the battery use," Pecht said. "It would increase use of the gas engine. Absolutely, gas mileage goes down and emissions go up."

Hofmann also said the vehicle's fuel efficiency and emissions might be affected. But it is also possible that Toyota found a defect in the inverter software that caused the overheating. As an example, he said, the transistors could short-circuit if the software that controls the power switching was faulty.

A Toyota spokeswoman, asked whether the software would affect the vehicles' fuel efficiency or emissions, said, "We don't have any comment on that."